EMERGING MARKETS-Latam currencies fall against strong greenback ahead of Fed rate decision

Credit: REUTERS/Luisa Gonzalez

By Amruta Khandekar and Anisha Sircar

Sept 20 (Reuters) - Most Latin American currencies fell on Tuesday with the dollar staying close to recent peaks as investors braced for a sharp interest rate hike from the U.S. Federal Reserve on Wednesday.

The dollar index =USD hovered near an about two-year high hit earlier this month, with markets pricing in 81% odds of a third consecutive 75 basis points rate hike from the Fed while bets of an even bigger 100 basis points rate hike stood at 19%. FEDWATCH

"The strong dollar environment is particularly worrying for those EMs with large dollar debts, including parts of Latin America," William Jackson, chief emerging markets economist at Capital Economics, wrote in a note.

"Meanwhile, there is a group of countries where dollar debt are large but currencies are not down sharply on a year-to-date basis, such as Colombia and Chile... That could lead to sharper falls in their currencies and higher dollar debt servicing costs," Jackson added.

Colombia's peso COP= slipped 0.2% while Chile's peso CLP= fell 0.3%. The two currencies are down nearly 8% each so far this year, lagging all major regional peers in 2022.

Along with the Fed, a host of rate decisions by other central banks are also due this week, including from Brazil on Wednesday and Turkey and South Africa on Thursday.

Investor sentiment in Latam markets, buoyed earlier this year by higher commodity prices, has been bogged down by a sturdy dollar and a risk-off mood in recent weeks amid heightened recession worries as well as concerns about rampant inflation.

Political tension has also weighed on markets, with Brazil's presidential election outcome awaited in October.

A poll on Monday showed candidate Luiz Inacio Lula da Silva slightly extended his lead over President Jair Bolsonaro.

Brazil's real BRBY, BRL= was little changed. The country's economy minister said on Monday that monetary tightening should be ending in the country, predicting falling interest rates next year.

The Mexican peso MXN= led declines among peers, falling 0.4%. Latam's second-largest economy likely grew by 2.9% in August compared with the same month a year earlier, a preliminary estimate from national statistics agency INEGI showed.

A dip in oil and copper prices also weighed on the resource-rich region as a firm dollar and the spectre of an economic slowdown weighed on sentiment. MET/LO/R

Elsewhere, Ecuador reached an agreement to restructure its debt with Chinese banks, the government said Monday, providing relief worth some $1.4 billion until 2025.

Key Latin American stock indexes and currencies at 1501 GMT:

Stock indexes


Daily % change

MSCI Emerging Markets .MSCIEF






Brazil Bovespa .BVSP


Mexico IPC .MXX






Argentina MerVal .MERV








Daily % change

Brazil real BRBY



Mexico peso MXN=D2



Chile peso CLP=CL



Colombia peso COP=



Peru sol PEN=PE



Argentina peso (interbank) ARS=RASL



Argentina peso (parallel) ARSB=



(Reporting by Amruta Khandekar; editing by Jonathan Oatis)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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